Category: Conference Call

Conference Call: President Obama’s Green Book — The Future of Estate Planning

As we have emphasized over the last two years, the Estate Tax Exemption Amount and the Lifetime Gift Exemption Amount currently at $5.0 million per person will end December 31st, 2012, and revert to $1.0 million.

President Obama has already indicated in his Green Book for the 2013 Budget that the Lifetime Gift Exemption will remain at $1.0 million and the tax rate will be 55% for transfers above that $1.0 million amount.

The opportunity, therefore, to transfer assets into a protected trust before year-end while retaining flexibility is unprecedented.  The additional benefit is that the future appreciation of the assets will be sheltered from both federal and state estate tax.

Read on or LISTEN HERE: “President Obama’s Green Book — The Future of Estate Planning”

When considering transfers of greater than $1.0MM in real estate, securities, partnership interests, or other assets, we strongly advise that a properly structured trust is the ideal recipient.

Given the potential value of the trust, it is specifically designed so that you and your spouse are able to enjoy a measure of flexibility to continue to access and control the transferred assets.  Among other things, this is accomplished by:

  • Retaining the power to remove and appoint Trustees or to receive loans from the trust;
  • Granting your spouse the right to receive distributions and serve as Trustee; and
  • Authorizing your spouse to determine how assets will be divided between your children.

Additionally, through the trust’s provisions, the assets receive an exceptional degree of protection against financial reversals and liability that you, your spouse, your children, and your other descendants may encounter during your lifetimes.

Again, after the expiration of the $5.0MM exemption at the end of 2012, only an act of Congress may increase the exemption from its $1.0MM level.  While it is unknown how Congress may respond after the election, the exemption is still likely to substantially decrease due to the current economic and political climate.

The nation is facing a “fiscal cliff” – the coinciding action of tax increases and spending cuts in order to remedy escalating budget deficits.  The result is that this special $5.0MM planning opportunity may never resurface during our lifetimes and be forever lost.

The prospective constraints on the present amount gifted will exponentially diminish the future amount that may be exempt from estate tax.  This concern is compounded by the fact that certain assets may currently be undervalued due to current market conditions and may reasonably be expected to experience accelerated growth in the coming years and decades in the protected trust.

To highlight the long-term estate tax advantage of making a significant lifetime transfer to a trust, consider an example in which a $3.0MM gift is made, both spouses pass away in year 2032, the gift appreciates at a very modest 4% per annum, and President Obama’s proposed estate tax plan is adopted.  The value of the assets will have doubled.

The consequences of failing to make such transfer now are at least $650,000.00 in state estate taxes and $2,600,000.00 in federal estate taxes, reducing the amount received by the children by more than 50%.  Naturally, this negative effect is diminished if more assets are gifted away, if each spouse lives longer, or if the estate appreciates in value at a greater rate.

The firm will close for the year on December 15; therefore, to be effective, all work must be commenced and completed within the month of November. We invite you to call or e-mail our office to review your specific circumstances.

Conference Call: Top 10 Planning Issues for Recently Emancipated Children (over 18) and Minors

The Dog Days of summer are past us and the recent return to school for so many reminds us of the simple task of protecting our young adults and our minor children. McManus & Associates is pleased to share the recording of our “Back to School” edition conference call, which addresses issues associated with the well-being and care of young adult and minor children.

LISTEN HERE: “Top 10 Planning Issues for Recently Emancipated Children (over 18) and Minors”

Below please find a list of topics that attorney John O. McManus, founding principal of the firm, covers in the discussion.

1. Legal and medical risks for children upon reaching age 18, legal adulthood. What happens if they are in a car accident or are hospitalized? How can we access medical and school records?

2. Overseas travel and study abroad. What are the necessities when your child is overseas?

3. Upon attaining age 18, does your child require a will?

4. Your child is 18. Should you appoint him or her as your representative in your incapacity planning?

5. Your child is 18 or 25. Should you make outright gifts to them? What are the risks of these gifts and custodial accounts?

6. Your 25 year old (or younger) child is getting married. Should you review with them whether a prenuptial agreement is necessary to protect the family assets?

7. Your child is under 18. What are the medical risks if you are unavailable?

8. Your child is under 18. What if both parents pass away or become incapacitated? What must a comprehensive plan to protect this child address in addition to appointing guardians?

9. Your child is under 18 and your selected guardians reside overseas. What are the risks to getting them “Home?”

10. Passports for children. What is the relevance of children of foreign nationality having a passport in the foreign jurisdiction? If your children are foreign born or going overseas, are passports current in the event of an emergency?

Please contact us — McManus & Associates, a trusts and estates planning law firm — at (908) 898-0100 if we can help with any questions.

Conference Call: Ready to Retire! Top 10 Ideas

John O. McManus, who founded McManus & Associates in 1991, has outlined the most important things that those in retirement, as well as those planning to retire, should carefully consider to protect themselves and their families. During a new conference call — part of a complimentary educational series provided by the firm — John explores the 10 issues below. Click the link to hear the 30-minute discussion.

LISTEN HERE: “Top 10 Considerations for Those in Retirement and Those Planning to Retire”

  1. Re-titling retirement accounts rolled out of a group plan and revisiting your financial plan with your advisor.
  2. Medicaid trusts and the eligibility period for elderly parents.
  3. The value of long-term care insurance and replacement of group term insurance.
  4. Effective gifting to descendants to retain access and/or control in trust.
  5. Moving out of state and the resulting domicile and residency issues.
  6. State estate taxes (a preview of the best states to move to for estate tax purposes and which have the best quality of life).
  7. Creating a family mission statement and all that it entails.
  8. Increased charitable giving (planned gifts, charitable lead trusts, charitable remainder trusts, foundations, and consideration of board memberships).
  9. Issues surrounding part-time consulting work and creating a business entity.
  10. Issues pertaining to real estate investments (ownership in an LLC or trust or sale to children in trust).

We’d love to help you learn more. Please give us a call at (908) 898-0100 or reach out via our Contact page.

Conference Call: Top 10 Topics on the $5MM Federal Gift Tax Exemption – Is It All Hype?

There are just a few months left to address what some practitioners are calling the end of the “golden age” in estate planning. During a conference call in August 2012, John O. McManus, trusts and estates planning attorney and founding principal of McManus & Associates, discussed the “Top 10 Topics on the $5MM Federal Gift Tax Exemption” below.

LISTEN HERE: “Top 10 Topics on the $5MM Federal Gift Tax Exemption – Is It All Hype?”

1. The propaganda – why is it called the “golden age”?

  • Gift tax exemption was always $1.0MM, meaning any gift in excess of that amount was subject to gift tax at a rate of up to 55%.
  • The exemption was increased to $5.0MM, dramatically increasing the ability to make tax-free gifts.

2. The deadlines – what actually happens on January 1, 2013?

  • Exemption retreats back to $1.0MM.
  • It will take an act of Congress to increase the exemption over $1.0MM.

3. Future tax rates – what is the new estate tax rate starting January 1, 2013?

  • There will be a 55% rate for estates in excess of $1.0MM.
  • This is an increase of 20% over the current 35% estate tax rate.

4. Future tax benefits – what about projected appreciation of the gift?

  • Once transferred, it is not just the gift that enjoys the exemption, it is also the growth that is outside the estate.
  • The entire amount is free from both federal and state estate tax.
  • Depreciated real estate and securities enable a gift of underappreciated assets.

5. State Estate Tax – what is the net state tax benefit if the $5.12MM Federal Exemption Amount remains unchanged?

  • NJ: 8-12% on average, with the top rate at 16% for an estate over $10MM.
  • NY: 3.5% to 12.45% for estates from $1.1MM to $15MM.
  • CT: over $2MM a 7.2% rate; up to 12% for estate over $10MM.

6. State gifting limitation – is Connecticut’s $2.0MM gift tax free limitation the beginning of a trend?

  • CT was the first state to reduce its estate tax exemption and is the only state that currently imposes a gift tax.
  • 7.2% rate on gifts over $2MM; up to 12% for estate over $10MM (same as estate tax).
  • Of the states that impose an estate tax, CT was one of the more liberal with respect to estate tax exemptions. There is a concern that states with more confiscatory tax regimes will consider following suit, particularly if the federal estate tax exemption does not retreat back to $1.0MM.

7. Gifts transferred into trust – is there any opportunity to access the gift or to change the beneficiaries?

  • Yes, the grantor can appoint the spouse as trustee and beneficiary, which we recommend.
  • The grantor may retain the option to borrow from the trust.
  • If drafted correctly and with precision, there can be an opportunity for the grantor to receive the assets back after the spouse beneficiary dies and if there has been dramatic reversal in his or her personal finances.
  • For years, we have had clients who wanted to move $1.0MM out of their estate to take advantage of the exemption, but they were concerned about access to the trust assets.  Now that the exemption is increased to $5.0MM, this concern is exacerbated. As a result, we have developed a structure that allows for significantly greater flexibility.
  • We also support procuring an insurance policy on the life of the spouse who is the trustee and beneficiary of the trust. If the spouse dies, there are then meaningful liquid assets available to the grantor to replace the spouse’s access to the trust as trustee and beneficiary.

8. Asset protection – can the gift truly be protected from creditors and plaintiff’s lawyers?

  • Yes, and the spouse can serve as the trustee.
  • We favor institutional trustees to accomplish this aim, and, at a minimum, we must preserve the right to transfer the situs of the trust to another state with stronger asset protection statutes.
  • The trust can protect the assets from attack for those in high-risk professions, such as physicians, or those in second marriages, where the spouse wants to ensure the assets pass to the children of the first marriage.

9. Planning limitations after the gift is made – are there any additional strategies or is it just “one and done”?

  • No, additional gift tax-free funding can take place provided that there is an unused amount of credit available. For example, if the gift tax exemption settles at $3.5MM in 2013, and a $2.0MM gift was made in 2012, there would still be a $1.5MM gifting opportunity.
  • The trust can also purchase certain components of the family wealth which exceed available credits using the assets of the trust as down payments. These more valuable assets may constitute the more aggressive portion of the overall portfolio, so all prospective growth is outside of the estate.

10. What does President Obama say about the exemption? What does Candidate Romney say about the exemption?

  • Mr. Obama wants to return to the 2009 levels. That would mean an estate tax exemption of $3.5MM and a gift-tax exemption of $1.0MM. The proposed top tax rate for both would be 45%.
  • Romney wants to eliminate the estate and gift tax all together. He is taking the Republican party line to broaden his appeal to conservatives, even though he comes from one of the most liberal states in the nation.
  • We have a mounting deficit, which will need, in part, to be bailed out with taxes.

BONUS

11. What assets you use to fund the trust and why now if you wish to gift only $1.0MM?

  • Many of those that we represent who are rushing to get some assets into the trust are using their residence or cash and then determining their approach for investing the money later. The residence can also be sold and the cash used for other investments or to purchase another piece of real estate.
  • Others are using cash to buy large life insurance policies to “supercharge” the trust, and guarantee a significant return or investment after they pass away.
  • Clients who want to give $1.0MM may say that there is no rush, but we always believe in the merit of (i) getting assets off the balance sheet; (ii) having those assets protected in a trust; and (iii) enjoying future growth that avoids federal and state estate tax.

McManus & Associates would welcome further discussion as you consider taking advantage of the “golden age” by December 31, 2012.

Conference Call Recording: “Preserving the Family Retreat: Top 10 Planning Strategies”

This year presents a wonderful opportunity to take advantage of the $5MM exemption (combined $10MM between husband and wife) to move businesses, private equity ownership, stock portfolios, or cash out of your name and into trust for the benefit of loved ones. The chance to transfer real estate into trust is a very popular choice, as well.

For years, there have been numerous strategies available to transfer real estate in a tax-efficient manner, but this year there is increased flexibility. The advantages and disadvantages to choosing one’s second residence as a funding source for the $5MM exemption should be considered. For many, a second residence serves as a place of rich memories, a place for the family to still gather, and a place you hope your children and grandchildren will continue to enjoy. By putting this asset into trust, you will have created greater assurances that this home or a successor home will remain in the family for many years.

Strictly from a financial standpoint, is real estate the best asset to transfer? The answer may be that in some instances we are not able to get the best discounted value. On the other hand, since real estate is naturally discounted due to current market forces, it may present the best financial and emotional option.

McManus & Associates invites you to investigate these and other relevant planning issues for second residences.

LISTEN HERE: “Preserving the Family Retreat: Top 10 Planning Strategies”
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The following are the topics that are covered during the discussion:

1. Joint tenants with rights of survivorship (the typical ownership between husband and wife) – what protections does it afford?

2. Planning with LLCs – what are the strategies for anonymity and tax planning?

3. Revocable Living Trusts – is it just about avoiding probate for out-of-state summer homes?

4. Qualified Personal Residence Trusts – allow for great discounts, but is it an appropriate strategy to use with the $5M exemption?

5. Lifetime Credit Shelter Trusts – don’t allow discounts other than market discounts, but is the flexibility with the trust worth the loss of discounts?

6. Funding a trust with life insurance or other assets to provide liquidity – who pays the bills to fund the expenses for the residence and how does this affect the family dynamics?

7. Lifetime trusts for children after parents pass away – is the asset protection for children in their marriages and the exemption from general skipping transfer tax worth the effort?

8. Use of the trust as a vehicle to hold properties located in New York by owners who work in, but live outside of New York – are there strategies to avoid the income tax on non-New York residents using a trust?

9. The family mission for seasonal/vacation residences – does having the family home preserved in trust for generations lead to more stress and divisiveness for your children or does it achieve your goal of creating generations of happy family members at the retreat?

10. Important, but often overlooked, clean-up paperwork related to real estate transfers – how critical is it to confirm that all deeds have been retitled, all tax forms filed, and lease agreements executed?

McManus & Associates would love to help you determine the best way for you and your family to take advantage of the $5MM exemption.

Conference Call Recording: Top 10 Estate Planning Issues for Divorcing and Remarrying Individuals

John O. McManus, trusts and estates planning lawyer and founder of McManus & Associates, today held a conference call with clients, during which he discussed the Top 10 Estate Planning Issues for Divorcing and Remarrying Individuals — please see below.

You are invited to hear John’s expert guidance, based on more than two decades in the field. Click on the audio player below to listen.

LISTEN HERE: Top 10 Estate Planning Issues for Divorcing and Remarrying Individuals

We welcome the opportunity to help you and your loved ones with our 10-Step Wealth and Family Values Protection Process™. Please give us a call at 908-898-0100 or 212-753-9000.

Top 10 Estate Planning Issues for Couples Exiting a Relationship and Prior to Remarrying

1.            Addressing guardianship for minor children after death

  • In instances where a separation or divorce is not amicable, one of the most significant risks is that the parents will choose different guardians for their minor children.
  • This results in a predicament where only the survivor’s wishes will be honored and may cause additional, unnecessary rancor between the families.
  • It is best to address this concern in advance of the divorce during the mediation and settlement process so that both spouses agree on a unified plan for the care of their children if they both pass away and subsequently to have both parties reflect the arrangement in their Wills.

2.            Separation and the spousal elective share

  • During the period when a married couple is separated, one of the key problems is that each spouse continues to be named as the primary beneficiary under the Will and will receive the entire estate.
  • In most cases, this is an unsatisfactory outcome and it is critical to revise the Will in order to limit the spouse to the statutory elective share (typically about 1/3 of the estate) so that as many assets as possible pass directly to the children or other loved ones at death.
  • The amount that passes as part of the elective share can be held in trust for the benefit of the estranged spouse.

3.            Incapacity planning during separation

  • A related issue is that during the period of separation, the spouse is empowered to act with respect to the most sensitive and important health, financial, legal, and personal matters through the Health Care Proxy and Power of Attorney.
  • In a time of estrangement, it is not appropriate for the spouse to possess these authorities to act for such matters because they may not act with the appropriate judgment or best intentions.  In more extreme circumstances, the estranged spouse may use these in an intentionally detrimental fashion.

4.            Life insurance and divorce settlements

  • One of the most common errors during the divorce settlement period is the insufficient attention paid to estate tax planning, especially with respect to obligations for former spouses to maintain life insurance.
  • During this process, it is essential for the spouses’ attorneys to consider whether the life insurance should be held in an Irrevocable Life Insurance Trust (ILIT).
  • The purpose of the ILIT is to protect the proceeds from attack or diversion from a new spouse and to avoid estate taxes before the children from the first marriage receive it.

5.            Asset titling and beneficiary designation

  • Once a divorce is completed, it is critical that the assets retained by either spouse after the divorce remove the former spouse as a beneficiary and that the former spouse is no longer named on any deed or any account that was previously owned jointly.
  • While a court may enforce the separation agreement or divorce settlement, it is essential to note that if the former spouse is still named long after the divorce is complete, it may be interpreted that this was an intentional decision to keep the former spouse as a beneficiary.

6.            Prenuptial agreements for high net worth families

  • For those possessing material wealth or who may expect to inherit material wealth during their lives, a prenuptial agreement that addresses post-death distributions is a mandatory consideration.  It is also a particularly relevant issue for those who remarry and have children from the first marriage.
  • Without a prenuptial agreement, the spouse is, by law, entitled to a substantial portion of the estate (the elective share) which would divert assets to the second spouse and away from the intended beneficiaries.
  • Therefore, the prenuptial agreement must be established to clearly define the expectations for distributions when an individual passes away to protect the interests of the recipients.  These provisions must then be captured in the Last Will and Testament.
  • In many instances, individuals do not wish to sign a prenuptial agreement since they find it inelegant or unromantic or simply do not wish to disclose their total financial assets to their new spouse.

7.            Trusts for a spouse after remarriage

  • As is typical after remarriage, individuals desire to provide for their new spouse if they pass away.
  • It is strongly recommended that these transfers be made in trust or there will be no way to ensure that the new spouse leave those assets to children from the first marriage.

8.            Incorporating a new spouse into incapacity planning

  • Once an individual remarries it is important to appoint the new spouse as an agent to participate in medical, financial, legal, and personal matters so that they do not have to go to court in order to assist in the event of incapacity.
  • However, if there are children from a previous marriage, it may be important to include certain safeguards, especially in the Durable Power of Attorney, to assure that a new spouse does not transfer financial assets into his or her name to the disadvantage of the children from the first marriage.

9.            Life insurance preservation and wealth transfer via gifts prior to and after marriage

  • The purchase of new life insurance policies in an ILIT can be a cost-effective solution to provide sufficient assets for both a new spouse and other beneficiaries without additional exposure to estate taxes.
  • Efficient gift planning can also be implemented so that other beneficiaries, such as children, may be provided for adequately through transfers that utilize the lifetime gift exemption or tax-free strategies, such as GRATs and annual exclusion gifts of $13,000 per year.

10.         Benefits of a self-settled trust

  • Mindful that prenuptial agreements are not always executed, for those who wish to shelter assets prior to or after a remarriage to avoid the right of election by the second spouse or potential future divorce, there are alternatives by creating a self-settled trust.  The self-settled trust enables an individual to maintain the flexibility to access the assets.
  • A self-settled trust is one in which the individual transfers assets to a trust where he or she is a beneficiary.  Such trust must be located in a state with asset protection statutes, for example Delaware, Alaska, and South Dakota.
  • This strategy permits many additional and meaningful estate planning benefits, such as:
    • allowing the individual to receive distributions from the trust as a beneficiary;
    • removing the assets from the estate for tax purposes;
    • preserving generation-skipping tax credits; and a higher degree of asset protection against liabil

Conference Call Recording: Top 10 Planning Issues for Non-U.S. Citizens Including U.S. Residents With Overseas Assets

John O. McManus, founding principal of McManus & Associates and estate planning lawyer, during a recent client conference call addressed issues pertinent to the growing number of the firm’s non-U.S. citizen clients and clients with property overseas. Surveying the landscape for changes in estate and tax planning, John delivers the newest updates from the Eighth Annual International Estate Planning Institute that took place in New York City, as well as shares guidance based on years of experience providing service to non-U.S. citizen clients.

LISTEN HERE: Top 10 planning issues for non-U.S. citizens including U.S. residents with overseas assets

Some of the topics addressed may be familiar to those planning for non-U.S. citizens, such as protective trusts for the surviving non-U.S. citizen spouse to ensure that a marital deduction can be enjoyed. However, John also introduces the new Report of Foreign Bank and Financial Accounts (FBAR) rules for foreign account holders. Below please find a complete list of the matters that are discussed during this conference call:

  1. Custody and international transport issues for minor children when non-domestic guardians are named
  2. Planning for estate tax exposure for non-U.S. citizen spouses
  3. Planning for estate tax on principal distributions from a qualified domestic (QDOT) Trust
  4. Planning for foreign assets to avoid U.S. estate tax
  5. Planning for non-resident aliens with U.S. property
  6. Inheriting international assets as a U.S. resident
  7. Limitations on lifetime gift transfers between non-U.S. citizen spouses
  8. Tax consequences and planning for green card holders residing in the U.S. for more than eight years
  9. Annual reporting requirements for assets outside of the U.S.
  10. Taxation of foreign trusts

Conference Call: Top 10 Ideas to Discuss with Your Financial Advisors Now

Hear firm Principal John O. McManus discuss the valuable estate planning-related items that should be reviewed with one’s financial and insurance advisors now. Click below to hear him share the latest developments related to estate planning predictions, strategies, and dangers.

LISTEN: Top 10 Ideas to Discuss with Your Financial Advisors Now

Top 10 Ideas to Discuss with Your Financial Advisors Now

Leading trusts and estates planning firm McManus & Associates identifies 10 estate planning strategies that should be considered early in 2012

Top AV-rated attorney John O. McManus offers free expert guidance via conference call recording

NEW YORK, NY – Americans, particularly high-net-worth individuals, should investigate financial strategies to build and preserve their assets now, with the expectation that the five million dollar gift credit may expire on December 31, 2012. Based on more than two decades of experience working with prosperous and successful clients across generations, John O. McManus – top AV-rated trusts & estates attorney and founding principal of tri-state-area-based McManus & Associates – today released a report, entitled “Top 10 Ideas to Discuss with Your Financial Advisors Now.”

During a recent conference call with clients, McManus shared the latest developments related to estate planning predictions, strategies, and dangers. To hear him discuss the valuable planning-related items that should be reviewed with one’s financial and insurance advisors now, visit http://mcmanuslegal.com/2012/02/conference-call-top-10-ideas-to-discuss-with-your-financial-advisors-now/.

 “Ensuring that the least amount of one’s money goes to Uncle Sam and the most stays in his or her pocket must be a proactive, ongoing process,” said McManus. “Estate planning is a highly strategic practice, and the tools and tactics used to protect individual and family wealth evolve as the legal and tax environment changes. McManus & Associates is excited to share 10 strategies that should be explored with your financial and insurance professionals right away.”

 Top 10 Ideas to Discuss with Your Financial Advisors Now

 1.      Utilizing term life insurance with Qualified Personal Residence Trusts (QPRTs) and Grantor Retained Annuity Trust (GRATs)

  • Life insurance policies purchased by an ILIT for the duration of the Initial Term of a GRAT or QPRT hedge against the mortality risk of those strategies and the inclusion of GRAT or QPRT assets in the estate.

2.      Using whole life insurance and annuity contracts as an alternative asset protection strategy

  • For those who prioritize asset protection (i.e. doctors, business owners, etc.), these financial instruments cannot be accessed by creditors.
  • There is an added benefit of tax-free appreciation.

 3.      Converting to Roth IRAs before income tax rates rise

  • For those who are concerned that the capital gains rate will rise, it is sensible to consider converting from a traditional IRA to a Roth IRA and paying the capital gains tax at the current rates.
  • Future distributions from the Roth IRA are not subject to ordinary income tax.
  • Older individuals also have the ancillary benefit of reducing estate tax exposure by removing assets from the estate to pay the taxes.

4.      Exploring charitable trusts with large IRAs for second marriages

  • Large IRAs can pass into testamentary Charitable Remainder Trusts to enjoy the estate charitable deductions while preserving the tax-deferred benefits of the IRA for beneficiaries.
  • Those in second marriages use Charitable Remainder Trusts to ensure that children (of a first marriage) benefit from the IRA after the spouse passes away.

5.      Re-introducing 2nd-to-die life insurance policies in anticipation of increased state and federal estate taxes

  • Those with taxable estates view 2nd-to-die life insurance purchased by an ILIT as a cost-effective way to defray the depletion of the estate by prospective taxes.

6.      Insurance policies on the lives of young children held by trust

  • Insuring children is a cost-effective way to establish their insurability from an early age. Tthe cash value of a policy may appreciate tax-free and be used for college, down payments on a child’s first home, wedding for children, etc.
  • Use of a trust is recommended so the policy is not included in the parents’ estates if child passes away and so proceeds to pass tax-free to the child’s future children or living siblings.

7.     Reviewing existing life insurance policies owned by trusts

  • Case law in recent years focuses on the role of the Trustee of an Irrevocable Life Insurance Trust and compels them to determine that policies owned by the ILIT are prudent investments.
  • For the Trustees to avoid possible liability, it is important to professionally review policies at least every three years to confirm they are performing efficiently and determine whether it is necessary to purchase different insurance.

8.      Establishing lines of credit as a gifting strategy for low basis or illiquid assets

  • If low basis assets are gifted, original basis carries through to beneficiaries, meaning capital gains tax would be high if assets are sold.
  • If assets are not gifted, they may be subject to estate tax, but they will receive a step-up in basis at the time of death, meaning capital gains tax is effectively minimized.
  • To receive benefit from gifting and maintain a step up in basis on death, an alternative is to consider using low basis asset to secure a line of credit and withdrawing from line of credit to make gifts to beneficiaries.

 9.      Transferring large cash value whole life insurance policies into trust with retained access for the insured

  • Current $5.0MM lifetime gift exemption, which expires January 1, 2013, affords individuals the opportunity to gift policies with large cash values into an ILIT to avoid estate tax.
  • The ILIT can be designed with provisions to allow the Trustee to borrow against the cash value and then to make a loan to the Grantor if needed.

10.  Decanting trusts to enable the gift tax-efficient purchase of additional life insurance

  • In New York, it is possible to decant the ILIT by statute to allow for the transfer of policies to a new ILIT with additional Crummey beneficiaries if it becomes desirable to consider a trust with different provisions.
  • Other uses for decanting are changing the timing of the distributions of the insurance proceeds to beneficiaries, revising Trustees, amending remote beneficiaries, etc.

For more information on McManus & Associates, visit www.mcmanuslegal.com.

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 About McManus & Associates

McManus & Associates, a trusts and estates law firm, was formed in 1991 by John O. McManus to provide the high quality experience of the largest firms coupled with the intimacy and efficiency of a specialized boutique firm. Over 20 years later, McManus & Associates continues to earn its reputation for integrity, intellectual ability, efficiency, and enduring relationships.

 

For more information contact:

Lauren DuBois

(917) 573-2485

communications@mcmanuslegal.com